Tech M&A Deals Set For Recovery In 2010

Tom Jowitt is a leading British tech freelance and long standing contributor to TechWeek Europe

Mergers and acquisitions in the tech industry are set to reawaken in 2010 after experiencing a six-year low in 2009

An analyst company that tracks M&As (mergers and acquisitions) in the tech sector has predicted that 2010 will see a reawaking of the market, after a very slow 2010.

So says PricewaterhouseCoopers LLP, which expressed renewed confidence in the market thanks to an increase of deals in the pipeline, and an overall increase in activity levels.

There is little doubt that 2009 proved to be a dreadful year for M&As in the tech sector, with the number of completed deals down over 60 percent from 66 in 2008 to just 25 in 2009. Consequently, deal values fell 52 percent from 6.8 billion euros (£5.9 billion) in 2008, to just 3.3 billion euros (£2.9 billion) in 2009. The last time such lows were reached was back in 2003.

Nevertheless, PricewaterhouseCoopers says that average deal values remained relatively stable, and exceeded the previous year, in both the software and IT services, as well as hardware segments. However the analyst house warned that recovery in the UK is likely to be slower than that of the United States.

“Recovery in UK tech M&A appears less pronounced than in the US, where mega-deal announcements have provided momentum,” said Andy Morgan, partner at PricewaterhouseCoopers. “However, the right conditions appear to be in place to mean a tipping point into the next stage of the deal cycle and local confidence is starting to return.”

“The US is leading the way for the recovery of M&As on the tech front,” Morgan told eWEEK Europe. “But we are lagging in the UK, which is down to a combination that large US players are the prime drivers in the consolidation stakes. Having said that, we are seeing approaches for European and UK businesses from the US.”

“Another thing to remember is that in the UK, the portion of government spend in the IT market is relatively high and most people are predicting challenges that the budget deficit will have on the government IT spend,” he said.

“People are also looking at the political climate and the practical reality that spending is going to be reined in,” he added. “However a lot our clients who are exposed to government spending also see it as opportunity as well.”

Looking forward, Morgan warned that expectations may need to be tempered somewhat during the next year.

“Extended transaction timetables are still a feature of the market and successful completions will depend on vendor price expectations. Both buyers and sellers must embrace a new era of realism if deals are to be done,” he added.

Morgan feels that the one tech sector that is likely to see a lot of activity is software-as-a-service (SaaS).

“The real hotspot in the world of applications is software-as-a-service (SaaS) as organisations see the benefits of moving large-scale software expenses from their capital budget to their operating budget, which will certainly drive increased M&A activity,” he said.

Regarding public floations, Morgan said that while there is a building pipeline of IPO opportunities in the tech sector, there is also a lot of hype in the market at the moment. “But in reality, it is less likely that tech stocks will be at forefront of a resurgence in the IPO market,” he told eWEEK Europe.